Abdulrahman Abdul Mannan Al Awar, the head of the department responsible for human capital development, told a conference in Dubai on Tuesday that creating these new saving schemes and funds in all sectors of the UAE economy was an important strategic step.
“These funds will help employees plan properly by taking advantage of end of service benefits, enabling them to make use of their financial resources, and create jobs for new generations,” he told the Workers Incentives & End of Service Benefits Conference 2019.
“It will lift investment in our domestic economies, while taking into account market stability and the low risks associated with such investment opportunities in the UAE,” he added.
The call for a new approach that will affect millions of employees of the UAE, both in governments and private sector, comes as the authorities look to make major reforms to the current end of service gratuity scheme which provides a severance payment for expatriate workers.
The current end of service scheme offers expatriate employees a relatively small final bonus when their employment in the UAE comes to an end. It is usually paid from general corporate accounts, rather than from a separate savings scheme, and suffers from poor compliance and governance.
Equally the growth in the UAE economy, which is encouraging workers to stay longer, later retirement ages and recent changes to the visa rules allowing those with assets to stay well beyond their employment contract, are all changing the nation’s demographics increasing the need for a better retirement planning system.
The current end of service payment is based on a simple formula. Employees receive 21 days of base pay for each year of service up to the first five years. They are then entitled to 30 days of base pay for service after five years, though the overall total is capped at two years of base pay.
The FAHR director general said he believed that the UAE could create new types of saving schemes and funds by following successful global practices in this field, as well learning from existing schemes such as that run by Emirates Airlines for its staff which, he said, had added to the company’s competitiveness.
This is the first step by the government to set up a proper retirement savings system though it appears to stop short at this stage of calling for the introduction of a mandatory defined contribution retirement savings plan.
The UAE, as the main financial hub in the region, is keen to follow the worldwide trend towards better retirement planning and it is also conscious of making any move that might make its economy less competitive compared to its neighbours.